What are the Advantages of Dematerialisation?
The process by which tangible share certificates are converted into online versions is called dematerialisation. It gets rid of the dangers of losing or damaging physical documents. Whereas, it makes transactions quicker and more accurate for smooth trading. By reducing paperwork and increasing transparency, record-keeping becomes less complicated and safer. However, with benefits come drawbacks too. In this blog, you will understand the advantages and drawbacks of the dematerialisation of shares.
Key Highlights
- By storing stock electronically instead of having them in physical form, dematerialisation serves as insurance against their loss or damage.
- It makes buying and selling smoother by allowing fast transactions and money transfers straight into your bank account.
- A Demat account provides a high level of safety in keeping securities safe. The threat to lose or destroy stock certificates is eliminated. The investor’s possessions are kept intact and secured through an electronic format.
- Demat accounts can attract various charges such as maintenance fees.
Table of Contents
Advantages of Dematerialisation
There are various advantages of dematerialisation that you should know. Let’s discuss them in detail:
Safe Storage
Physical share certificates can be stolen or damaged, making them difficult to keep. A Demat account lets you safely store your shares and retrieve them at any moment. You can be confident your shares are secure since NSDL and CDSL hold them for you.
Ease of Access
Trading shares is no longer a complex and time-consuming job that involves numerous visits to brokers or spending long periods on hold. With a simple ‘sell’ click on your online brokerage account, you get instant access to selling your shares. In less than 48 hours, the money you made from it will be reflected in your bank account.
No-Error Trades
In earlier days, the share certificates were done manually leading to errors. There was a specific term for erroneous trades known as “Vanda” trades. However, you can avoid these problems with an online Demat account. You can easily trace the price at which you bought your stocks and also that your orders are carried out in a flash.
Transfer of Rights
Today, it is very easy for a nominee of a Demat account to claim or withdraw money from that account. Whereas, this was not so easy before, a lot of time was spent trying to liquidate physical certificates of shares.
Multiple Financial Instruments, One Solution
Demat account makes it easy to store different types of investing instruments such as shares, bonds, debentures, and ETFs. You can easily keep track of your assets through a Demat account and manipulate them according to what the market demands.
Drawbacks of Dematerialisation of Shares
Though there are many advantages, there are some drawbacks as well. Let’s discuss them in detail:
Account Maintenance Charges
A Demat account may include a fee that the broker passes on to the depository regarding costs incurred when opening this kind of trading account. The same goes for the annual account maintenance and custodial fees among other transaction charges incurred every time an asset is sold.
An Uncontrollable Urge to Trade
A Demat account might tempt investors into buying stocks based on “expert” recommendations from their friends or family. This might result in uncalculated risk judgments that might compromise their long-term monetary aspirations. Any spontaneous act due to the simplicity associated with trading may lead one to lose their hard-earned cash.
Technology Might Be an Obstacle
Many people consider this to be complicated because trading and investing are increasingly driven by technology. However, there are Demat accounts that provide a call-and-trade facility allowing investors to buy or sell through just one simple click.
Dishonest Experts
There are many investors out there and one needs to beware of fraud. You should look for a SEBI-licensed advisor for your investment decision. You can also visit the SEBI website for a list of prohibited investment consultants and not pay heed to their suggestions.
Conclusion
Understanding the benefits and limitations of dematerialisation is important as it can help you make informed investment decisions in the present digital age. Dematerialisation enables ease of access, reduces errors & maintains transaction accuracy. It simplifies cross-trading and all other transactions regarding the transfer of possession of different instruments. However, it has some disadvantages too such as extra charges for keeping electronic records, trade without thinking, and technological problems. Therefore, even though dematerialisation improves trade feasibility and security measures, it is important to know its strengths and weaknesses.
FAQs on Dematerialisation Benefits
The process of dematerialisation, on average, takes about 30 days, and in some cases, if it exceeds that limit, you’re free to contact your DP about it. And if they don’t respond, you can submit your complaint to the NSDL and CDSL.
As of now, there are no such requirements, but sometimes it may depend on your DP.
Any investor can open an unlimited number of Demat accounts. However, you cannot open multiple Demat accounts with the same DP and pay the separate account maintenance charges, i.e., the AMC for all your Demat accounts.
Yes, the investor can transfer the shares from one Demat account to another by following a simple procedure. You can ask your DP to guide you through it.
You can often look to your DP for all the questions regarding your doubts. They will guide you, listen to your strategies, and advise you. You need to choose a good depository participant who suits your financial goals and has reasonable charges that suit your trading budget the most, and then start trading and investing in the stock market.